Balance sheet recession

A balance sheet recession , English balance recession sheet is one of Richard Koo term used to describe a condition in which, in particular after the financial crisis will save, not only the private sector but also the sector of the company or a financial balance greater than zero achieved. Companies, including banks, are trying to gradually make up for lost value by saving, assets that had to be written off on the assets side of the balance sheet .

Balance sheet recessions can lead to longer-term stagnation as the private sector struggles to get its balance sheets in order, for which it drastically cuts its spending. In order for the economy of lost revenue and in such a case, the sector has to state the opposite position as debtors take to the output waiver from investing as consumer reluctance of private balance.

The example of the Japanese economy shows that this can take years or decades. In a balance sheet recession, such as in Japan, a national debt financed by the central bank in no way leads to inflation , since during this phase the net borrowing of the private sectors (companies and consumers) declines regardless of the interest rate level. Further economic downturn can only be prevented by means of increased government expenditure.

reception

As early as 1936, John Maynard Keynes spoke of investment and liquidity traps as well as of equilibrium in the case of underemployment, and as early as 1931/32 the German economist Wilhelm Lautenbach stated that companies do not invest (not even at an interest rate of only 1%) when they continue their production Can not sell and use the offer of cheap credit to consolidate existing liabilities rather than investing again. Richard Koo's explanations are not new in this respect, but the conceptual assignment of balance sheet recession was coined by him. The behavior of companies and consumers during the balance sheet recession relativizes the (neo-) classical equilibrium theories , according to which no imbalance between saving and investment ( ex ante ) could arise.

See also

• Money glut
• Saving function
• The paradox of savings
• Credit crunch
• Deflationary spiral

literature

• Richard Koo: Balance Sheet Recession: Japan's Struggle with Uncharted Economies and Its Global Implications. John Wiley & Sons, 2003, ISBN 0470821167
• Richard Koo: The Holy Grail of Macroeconomics: Lessons from Japans Great Recession. John Wiley & Sons, 2009, ISBN 0470824948
• Clive M. Corcoran: Systemic Liquidity Risk and Bipolar Markets. John Wiley & Sons, 2012, ISBN 1118409337

Web links

• Die Zeit, 2003: Japan with a difference. Review by Stefan Bergheim (Deutsche Bank). Retrieved January 13, 2013.
• FAZ, April 18, 2012: America and Europe are approaching Japan. Retrieved January 13, 2013.
• Bank for International Settlements (BIS) , Board of Governors of the Federal Reserve System 2012 conference: Central banking in a balance sheet recession ( PDF ) Both accessed on January 13, 2013.

Individual evidence

1. ↑ Expert Council for the Assessment of Macroeconomic Development , November 2012: Annual Report 2012/13 , p. 93 f.
2. ↑ Expert Council for the Assessment of Macroeconomic Development, November 2012: Annual Report 2012/13 , p. 93 f.
3. ↑ Reinhard Konczer, Stefan Wollenbrand: A balance sheet recession in Europe - just a hypothesis? ( Memento of August 26, 2014 in the Internet Archive ) (PDF), p. 35. In: Oesterreichische Nationalbank, Statistics Q3 / 14, p. 35–40.
4. ^ Reiner Clement, Wiltrud Terlau, Manfred Kiy: Applied macroeconomics. Macroeconomics, economic policy and sustainable development with case studies. Munich 2013, ( online on Google Books ) p. 469.
5. ↑ Wilhelm Lautenbach at the secret conference of the Friedrich List Society in September 1931 on the possibilities and consequences of a credit expansion : “In America we have the picture that the interest rate for short-term money has become very low and yet we have the appearance that the industry is affected by it The chance of cheap money does not make use of it. Why doesn't she do that? There are two reasons. For one thing, for every entrepreneur in the American economy, the situation is such that he produces 100 and sells only 90. So the picture that we have with us. The market does not take in as much as it still produces now, and although it has not used its capacity, it sees itself reduced again and again in the attempt to adapt to the market by progressively reducing production. In such a situation, even with a low interest rate of 1 percent as an investment loan, the majority of industrial entrepreneurs would not make use of this facility. ”
   In: Knut Borchardt, Hans Otto Schötz (Ed.): Economic Policy in the Crisis. The (secret) conference of the Friedrich List Society in September 1931 on the possibilities and consequences of credit expansion. Baden-Baden 1991, p. 94.
6. ^ Wilhelm Lautenbach: Capital formation and use of capital. Berlin 1932: “[...] that the desired economic revival failed to materialize. [...] the unheard-of efforts and precautions to reduce the price of credit and to increase it, were a blow in the water because the borrower who had been counted on failed to materialize. New, additional production credit was not used, but almost exclusively credit for debt rescheduling, namely for farmers, railway companies and illiquid banks. "